Gold heading towards no man’s land : 9 May 2017

Gold prices are heading into no man’s land. While the yellow metal’s price has fallen sharply in the last few days, keeping in line with the fall in crude oil prices since the two commodities usually move in a similar direction, it may now be entering an uncertain era.

The reasons are many. Technically, gold is oversold and, as of now, has found support near its technical support level. However, according to experts, subsiding geopolitical issues and the certainty of a rise in US interest rates next month makes it difficult for gold to rise sharply in the medium term.

On Friday, the yellow metal dipped to $1221 per ounce, a two-month low level, while silver had a double whammy as it fell sharply to $16.3 in US Comex division of ICE exchange. In one month, gold was down 2.7 per cent, while silver was down 10.8 per cent. In India, the scene is not rosy. Gold was down 3.3 per cent in a month to close at Rs 28,905 per 10 gram. Silver also fell nearly 10 per cent to close at Rs 3,8625 per kg. On Monday morning, gold was trading at $1231 and silver at $16.44.

Nigam Arora, the author of the famous Arora report and an expert in international financial markets, said, “Gold is in no man’s land. It is technically oversold at a support zone of $1220 – $1226, this was a perfect set up for a rally.” However, he said that the strong employment report announced on Friday in the US was supportive of the US Federal Reserve raising interest rates. “At this time, gold does not like higher interest rates. Also, the US healthcare bill has been passed. This is good for equity and negative for gold,” he said.

On MCX, till last Thursday, open positions in gold were the lowest after November last year at 5949 lots. Also, the MCX Gold daily average monthly volume is at its lowest at Rs 2,069 crore in the current calendar year, reflecting the tepid interest from traders. Eighty per cent of open interest is held by top-ten short and top-ten long position holders. However, the top-ten sell positions are 3,131 lots, while the top-ten longs are 1,886 lots, showing the upper hand of sellers in gold.

Shekhar Bhandari, senior executive vice-president and business head, global transaction banking and precious metals for Kotak Bank, said, “The Fed seems set to hike regardless of whether inflation rises to their target in the near term. Gold has behaved sharply on account of the same. It is coupled with higher US real rates, tax reform and infrastructure. On the whole, geopolitical risks have also subsided. Safe heaven trade seems to have subsided for now.”

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